RS clears GST Bill, mobile bills may rise if GST rate above 15%

India’s top telcos have called for a uniform rate for telecom services across states/union territories (UTs) under GST, and capping it at 15%, warning that a failure to do so would increase call charges and lead to talk-time pricing discrepancies.Kalyan Parbat | ET Bureau | Updated: August 03, 2016, 22:14 IST

KOLKATA: India’s top telcos have called for a uniform rate for telecom services across states/union territories (UTs) under GST, and capping it at 15%, warning that a failure to do so would increase call charges and lead to talk-time pricing discrepancies.

They urged the government to resolve the sticky issues before implementing the Goods and Services Tax (GST) regime, even as the Rajya Sabha cleared the the much debated GST Bill on Wednesday.

A higher tax rate under the GST regime, they said, would drive up the cost of provisioning telecom services, and in turn, hurt the consumer by way of higher phone bills across the prepaid and postpaid segments.

Sachin Menon, Partner and National Head of Indirect Tax, KPMG in India, said “the telecom sector would have to pay 3 to 5% higher taxes in the GST regime, but in the positive, all non-creditable state taxes would become creditable in the GST era,” which would soften the increased tax burden.

The call for a uniform tax rate for telecom services under the proposed GST regime stems from the fact that India’s telecom circle boundaries are not aligned with the geographical borders of states/UTs in several cases.

Failure to do so, they said, could lead to tax complications in some of India’s biggest telecom markets with the prospect of differential levies within the same circle, resulting in pricing discrepancies, non-compliance, customer complaints and business disruption.

“We’ve recently told the finance ministry that it is imperative to have a uniform tax rate for telecom services across states/UTs, and a failure to do so could lead to a surge in consumer complaints as differential tax rates would impact the talktime pricing within a circle,” Rajan Mathews, director general, Cellular Operators Association of India (COAI) told ET.

COAI represents India's top telecom firms such as Bharti Airtel, Vodafone India, Idea Cellular and 4G entrant Reliance Jio Infocomm amongst others. The COAI, he said, is working with E&Y India to identify potential irritants in the GST regime for the telecom industry.

The telecom companies have justified their call for capping the tax rate under the GST regime at 15% on grounds that telecom services currently attract 15% service tax as the sector is an infrastructure service designated as an essential service under the Essential Services Maintenance Act, 1968, and is availed of by the masses.

"Any further increase in the rate of tax in the GST era would have a direct impact by way of on increase in costs for the subscribers, and would be crippling for the telecom industry as well," said the COAI director general.

KPMG India's Menon agreed that telecom services should find a place in the merit rate of 12% GST. “It is the only service that is used by majority of the common man, and if its cost goes up, it will have political implications as far as the electorate is concerned,” he said.

“For instance, the Delhi circle includes Gurgaon and Noida which are geographically a part of Haryana and Uttar Pradesh respectively. So, if the tax rates in the GST regime are not uniform across states/UTs, a prepaid user’s talktime within the Delhi circle could vary, depending on his actual location,” said a senior executive of one of India’s biggest mobile carriers.

Similar talktime voucher pricing challenges could creep up in the Northeast circle which comprises six distinct states as in Tripura, Nagaland, Arunachal, Pradesh, Meghalaya, Manipur or Mizoram. Likewise, in Maharashtra circle, which includes Goa, but are separate states geographically. Ditto with Madhya Pradesh and Bihar circles, which include Chattisgarh and Jharkhand respectively, but are separate states geographically.

Telecom companies have also urged the finance ministry to allow them the benefit of a single pan-India registration for tax compliance in the GST regime, primarily for the sake of administrative convenience, especially since state-wise registrations would be impossible to comply with for pan-India telecom operators.

“The model GST law envisages that every telecom service provider obtain separate registration in each state/UT for tax compliance. This would be infeasible sector since such state-wise registrations could result in a humongous increase in the compliance effort for pan-India telecom operators and complicate matters as it could lead to multiple assessments and audits, leading to a potential credit blockages and business uncertainty,” said Mathews.

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